January 2, 2013
U.S. Supreme Court Will Hear Oral Argument in Case Deciding Limitations Period for Civil Penalty Actions
On Jan. 8, the U.S. Supreme Court will hear oral argument in Gabelli v. SEC, an appeal from the Second Circuit, that addresses the statute of limitations for civil penalty actions. In April 2008, the SEC filed a complaint alleging that defendants concealed the fact that they allowed market timing in a mutual fund contrary to the fund's stated policy. The market timing took place from 1999 until 2002. The SEC did not discover the alleged fraud until late 2003. The Supreme Court must decide whether the SEC's fraud action for civil penalties is time-barred because it was not brought within five years "from the date when the claim first accrued," the language from the relevant statute (28 U.S.C. 2462). The Second Circuit, reversing the district court, held that the judicially-created discovery rule was read into the statute and delays the accrual of a fraud claim until the plaintiff discovers, or in the exercise of reasonable care should have discovered, the fraud. Defendants, in contrast, assert that the statute sets forth a clear rule whenever the government seeks to impose a penalty: the suit must be brought within five years from the date when the claim "first accrued," which means when the government's right to sue first arises.
The ABA's Preview has all the briefs filed with the Supreme Court.
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